Never in my career have I seen such a complete failure of corporate controls: Former Enron Fixer and New FTX CEO Hammers Incompetence at Failed Crypto Exchange

New FTX CEO John J. Ray has filed a declaration in support of Chapter 11 proceedings, completely slamming the utter incompetence of management in what was once the second-largest crypto exchange in the world.

To quote the filing:

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”

To put things in perspective, Ray handled the Enron collapse – a commodity trading firm that held a $60 billion market capitalization before it went bankrupt.

Ray explains the profound lack of management oversight:

“The FTX Group did not maintain centralized control of its cash. Cash management procedural failures included the absence of an accurate list of bank accounts and account signatories, as well as insufficient attention to the creditworthiness of banking partners around the world.”

And:

“The FTX Group did not keep appropriate books and records, or security controls, with respect to its digital assets.” [with the exception of LedgerX]

Ray hammers FTX stating audit, accounting, data protection, and other typical controls did not exist or did not to an appropriate degree.

In regards to audited information from 2021, Ray says that because it was controlled by former CEO Sam Bankman-Fried, he does not have any confidence in the information.

He is in receipt of two audits through 2021 – one provided by a firm that claims to be the “first-ever CPA firm to officially open its Metaverse headquarters in the metaverse platform Decentraland.” Ray states he has “substantial concerns” about these audits. No audit has been found for Alameda.

Only a fraction of assets have been secured so far.

Although the investigation is ongoing, Ray believes that many employees – including some senior executives – were unaware of the shortfalls.

Ray notes that Bankman-Fried often communicated using Apps that were set to auto-delete communications after a period of time – thus, some records have been lost.

Ray includes previously reported problems with Bankman-Fried acting like he is still involved with FTX.

“Bankman-Fried, currently in the Bahamas, continues to make erratic and misleading public statements. Mr. Bankman-Fried, whose connections and financial holdings in the Bahamas remain unclear to me, recently stated to a reporter on Twitter: “F*** regulators they make everything worse” and suggested the next step for him was to “win a jurisdictional battle vs. Delaware”

In brief, the whole thing is a hot mess. As the US Department of Justice is investigating, it is probably only a matter of time before criminal charges are filed.

 

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